I'm using TaxAct. Normally each year, the software will claim all of the state tax I've paid (on my W-2) as itemized deduction in my 1040. But after filing state income tax, usually there will be some refund, and next year, they'll send me a form saying "this is how much state tax you've been refunded". That will go onto my 1040 for the next year as income.

Can I claim less of that this year, so that I don't have to declare the refund next year?

For example, let's say this year my state tax on all W-2s together is $10K. But from TaxAct, I know (beforehand) that my state income tax this year will be only $8K.
So when filing my 1040, when it comes to itemized deduction-state/local tax, I only enter 8K (since that's the amount I will be paying anyway).

Now next year, I won't have to enter $2K as "additional income" on my 1040, because I never claimed that deduction in the first place.

Is it kosher? Logically I don't see anything wrong with it. If anything that will be more correct to how things actually are.

No, you can't do that. But you can choose to take the standard deduction even if itemizing results in a lower tax liability.

Will your marginal tax rate really be higher for 2018 than for 2017? If not, then itemizing for 2017 and counting some [1] or all of the state refund as taxable income in 2018 will probably save you money across the two years.

[1]Some of the refund will typically not be taxable for 2018, if your 2017 itemized deductions are less than the 2017 standard deduction plus the refund.

You can choose to take state sales tax instead of income tax (if your state has both). This would keep your state refund for 2017 from being taxable for 2018. It may or may not reduce your taxes overall between the two years, but you can do some estimating. This can also be helpful with the ACA "cliff", because the refund goes into AGI, while state income tax deductions come lower down and don't help with the subsidy calculation.

I haven't heard of anyone trying to take only a partial deduction; at a minimum you would likely get a nastygram from the IRS because your state issued a 1099 which you aren't accounting for.

If I don't itemize then obviously my state tax refund will be no income. However if I itemize, the excess state tax (the state tax refund) will be considered income if I had declared that excess in my deduction. So what I want to do is only declare the actual state tax I will pay this year in my deduction, thereby reducing my income for next year.

Is there a law against that? I don't see how it's considered illegal. The state tax refund was income earned this year, and already figured in all of the tax calculation and withholding. As long as I don't claim a deduction (take it out of income for this year) then I don't have to declare it as income again next year, right? Otherwise that money will be taxed twice.

And no, you can’t do that. You don’t have to claim the deduction on the tax withheld, but you do have to pay the tax on the refund.

Doesn't that mean the income will be taxed twice?

Providing I don't take a deduction for it this year, then that money was already taxed. It already is part of my income, and I already pay all my taxes on it, *this* year. The fact that I chose to pay excess tax to my state should be inconsequential to the federal authorities.

Next year when the state gives me back the excess, I shouldn't have to pay tax on it *again*, right?

Then that means if I use standard deduction, or don't itemize the full amount, I'll have strong incentive to pay the state only up to the actual state tax that will be assessed, and not a cent more, right? If I use standard deduction, for example, then how much state tax I pay does not affect my federal return one bit. But the excess state tax will affect my so-called "income" for next year, and consequentially my tax. That is gross injustice isn't it?

Then that means if I use standard deduction, or don't itemize the full amount, I'll have strong incentive to pay the state only up to the actual state tax that will be assessed, and not a cent more, right? If I use standard deduction, for example, then how much state tax I pay does not affect my federal return one bit. But the excess state tax will affect my so-called "income" for next year, and consequentially my tax. That is gross injustice isn't it?

No, it's what you choose to do. Why are you wiggling around with this, do what's legal.

Okay so you don't include the excess on Schedule A. The state already has the money and your state return will include the amount w/h for state taxes which is more than the tax owed. You will get a refund and a 1099-G. It is the 1099-G that makes it reportable income.

And no, you can’t do that. You don’t have to claim the deduction on the tax withheld, but you do have to pay the tax on the refund.

Doesn't that mean the income will be taxed twice?

Providing I don't take a deduction for it this year, then that money was already taxed. It already is part of my income, and I already pay all my taxes on it, *this* year. The fact that I chose to pay excess tax to my state should be inconsequential to the federal authorities.

Next year when the state gives me back the excess, I shouldn't have to pay tax on it *again*, right?

It's one of the many annoying "gotcha's" in the tax code. In the past, it mostly just flowed through from year to year without too much impact. It's when you transition from itemized to standard deduction that you get burned a bit. In a reverse form of this, I paid a property tax bill early, to have the deduction apply to 2017 where I could make use of it rather than have it fall into 2018 when I expect to use standard deduction.

There is provision to determine whether your state income tax refund is counted as income. That is based on whether you deducted state income tax payments in the previous year. While it might be logical to balance these out, that's not the way the tax system works. Two ways to avoid having your state income tax refund count as income next year: 1) use the standard deduction this year. 2) use state sales tax deduction instead of state income tax deduction this year (you typically have to manually set this option in tax software). Either of these options may cost you more taxes this year, but may pay off in the end.

There is provision to determine whether your state income tax refund is counted as income. That is based on whether you deducted state income tax payments in the previous year.

Actually,it is a little more complicated than that. You only have to count it as income to the extent that you benefited from the deduction. There is a somewhat complex calculation one can make to determine this.

Then that means if I use standard deduction, or don't itemize the full amount, I'll have strong incentive to pay the state only up to the actual state tax that will be assessed, and not a cent more, right? If I use standard deduction, for example, then how much state tax I pay does not affect my federal return one bit. But the excess state tax will affect my so-called "income" for next year, and consequentially my tax. That is gross injustice isn't it?

No, it's what you choose to do. Why are you wiggling around with this, do what's legal.

No, please read what I wanted to emphasize in this post, which is: "I'll have strong incentive to pay the state only up to the actual state tax that will be assessed, and not a cent more". Could you at least see the light of the sentiment? Here I no longer talk about doing anything that might be seen as against the tax laws. However, we all want to look out for our own interest, within the framework of the tax laws. The excess state tax money not only give the state interest-free loan, but also will increase my federal tax bill, if what you and some other claim ("1099-G is always taxable income") is correct.

There is provision to determine whether your state income tax refund is counted as income. That is based on whether you deducted state income tax payments in the previous year.

Actually,it is a little more complicated than that. You only have to count it as income to the extent that you benefited from the deduction. There is a somewhat complex calculation one can make to determine this.

Thanks.
I checked it out, but it looks like there's no such luck. On the form there's a field for "how much state tax you claimed as deduction last year", but there's no "how much state tax you were actually assessed". So the assumption is that all the deduction you claim was valid. Even though it wasn't (otherwise there will be no refund).
The only way to avoid is to either file standard deduction or use sales state tax deduction (instead of income state)

The only way to avoid is to either file standard deduction or use sales state tax deduction (instead of income state)

Or be subject to AMT for 2017 that effectively eats the "excess" deduction from "excess" state withholding/estimated-payments, so that the latter ends up not actually resulting in a benefit once the resulting AMT is added to the regular tax (in which case the refund you receive in 2018 will not be taxable). Same reasoning applies as described upthread: if a benefit "given" by the deduction in the regular tax was "taken away" partially by AMT, then the refund will be partially non-taxable.

But as a cure, that is worse than the disease.

The effect of inadvertent overwithholding/estimated-overpayment is to transfer taxable income from one year to the next.
If your federal marginal tax rate is higher (including AMT effects) in the first year than the second, the consequence is generally beneficial.
If your marginal rate is higher (ditto) in the second year, then the consequence is generally detrimental.
If it's the same, then it's a wash; "free loan" type effects tend to be small beans by comparison to marginal-rate-change effects.

As I understand the question, the OP doesn't want to claim all the non-business deductions to which he is lawfully entitled. Numerous responders have said, "No, that is illegal! You must claim all your [non-business] deductions."

I'm here to say that is nonsense.

If I donate $10k to charity and choose to deduct only $5k of it, please show me in the tax code where that is prohibited.

I'm using TaxAct. Normally each year, the software will claim all of the state tax I've paid (on my W-2) as itemized deduction in my 1040. But after filing state income tax, usually there will be some refund, and next year, they'll send me a form saying "this is how much state tax you've been refunded". That will go onto my 1040 for the next year as income.

Can I claim less of that this year, so that I don't have to declare the refund next year?

For example, let's say this year my state tax on all W-2s together is $10K. But from TaxAct, I know (beforehand) that my state income tax this year will be only $8K.
So when filing my 1040, when it comes to itemized deduction-state/local tax, I only enter 8K (since that's the amount I will be paying anyway).

Now next year, I won't have to enter $2K as "additional income" on my 1040, because I never claimed that deduction in the first place.

Is it kosher? Logically I don't see anything wrong with it. If anything that will be more correct to how things actually are.

I don't think you have thought this one through! You have already paid the tax that appears on your W-2 as withholding. How is not claiming money you already paid "more correct to how things actually are"?

So were you planning to file state taxes with the correct amount (to get the state tax refund) but then pretend on your federal taxes that you never paid the extra state withholding? The IRS matches W-2s to what you file and I expect it will reject your tax return and send you a letter. Alternatively, they may automatically correct your return assuming you made a math error and send you the rest of the tax refund you would have received if you had filed it properly in the first place.

In either case, you are better off following the rules and making sure everything is in order in terms of your return matching your W-2s and 1099s. If you don't want to pay more state tax than you owe then adjust your W-4 for the current tax year!

On the form there's a field for "how much state tax you claimed as deduction last year", but there's no "how much state tax you were actually assessed".

What you were assessed is irrelevant. The only deduction you can take is for tax that you paid. Just because the amount is on Schedule A and you itemize, doesn't mean that the refund is fully taxable the next year.

When you discover that you are riding a dead horse, the best strategy is to dismount.

As I understand the question, the OP doesn't want to claim all the non-business deductions to which he is lawfully entitled. Numerous responders have said, "No, that is illegal! You must claim all your [non-business] deductions."

I'm here to say that is nonsense.

If I donate $10k to charity and choose to deduct only $5k of it, please show me in the tax code where that is prohibited.

The issue is that OP will be receiving a 1099-G next January showing that he received a refund of his extra state tax withholding - presuming that the OP is actually going to file his state taxes to receive the state tax refund due to his over withholding. (No one will send out any forms regarding your charitable deductions so that is not an appropriate comparison).

This form also goes to the IRS, so the OP is then faced with a mismatch of 1099s. This WILL trigger a letter from the IRS since W-2 and 1099 matching is something the IRS will definitely do.

As I understand the question, the OP doesn't want to claim all the non-business deductions to which he is lawfully entitled. Numerous responders have said, "No, that is illegal! You must claim all your [non-business] deductions."

I'm here to say that is nonsense.

If I donate $10k to charity and choose to deduct only $5k of it, please show me in the tax code where that is prohibited.

The issue is that OP will be receiving a 1099-G next January showing that he received a refund of his extra state tax withholding - presuming that the OP is actually going to file his state taxes to receive the state tax refund due to his over withholding. (No one will send out any forms regarding your charitable deductions so that is not an appropriate comparison).

This form also goes to the IRS, so the OP is then faced with a mismatch of 1099s. This WILL trigger a letter from the IRS since W-2 and 1099 matching is something the IRS will definitely do.

Then I am misunderstanding the OP's original post. You are saying that he wants to not report all the $$$ that the state reports to him on a 1099-G. Yeah, doing that will get him a letter questioning the discrepancy.

You are saying that he wants to not report all the $$$ that the state reports to him on a 1099-G. Yeah, doing that will get him a letter questioning the discrepancy.

No it won't. I do lots of returns every year where the taxpayer itemized the prior year, received a state tax refund and some or all of is not taxable. I report the amount, if any on the 1040. The line on the 1040 often does not agree with the 1099-G. In fact, good tax software has a worksheet that will calculate how much should be reported.

When you discover that you are riding a dead horse, the best strategy is to dismount.

The only reason to do what is proposed would be if it was helpful to you to lower your 2018 AGI at the expense of increasing your 2017 taxable income. I can see this being desirable if your marginal tax bracket in 2018 was going to be higher than in 2017 or if having the extra income on 2018 would disqualify one for some credit. Otherwise, you are adding a complication for no apparent reason.

To the OP: Do you understand that if your income and tax situation is the same in 2017 and in 2018, there is likely no advantage to what you propose. For instance, if you are in the 25% tax bracket in 2017 and will be in the 22% tax bracket in 2018, you will pay more taxes under your proposal. If you take a $10000 deduction in 2017, you will save $500 in taxes because you are claiming that excess $2000. In 2018, you will only pay $440 in taxes on the refund. The advantage is $60 if you do it the "normal" way. This is not taking into account things like credit phaseouts.

Now, I did not go research it, but I do not think it is impossible to do what you propose. If you want to only claim $8000 in 2017, there is no reason that you could not do so. The biggest problem I can think of is that computer software would not be able to easily handle it. You would enter the $10000 of withholding when you were entering the W-2. This full $10,000 would show up on the Schedule A. You would have to use an override or do it by hand. Then the next year, I see no reason you could not leave the refund off. The refund is only taxable to the extent it lowered your taxes the year before. Since that $2000 was not included in the 2017 deductions, it would not be taxable in 2018. Now, you may have the complication of explaining this to the IRS. But I sort of think there would be a low likelihood of it coming up because of the complicated way the tax refund is incorporated into the return. So, if the reason the OP wants to do this is for simplicity then that is poor choice. It will be more complicated and will result in higher taxes for a typical person with a stable income. I would do more reading if you really wanted to proceed.

Just when I thought it is impossible, then someone comes along and say it is possible, but not saying how

There a number of inaccuracies in some of the post that I would have liked to argue, just for a better understanding. But that will be too much rambling. So let me just address the biggest one:

"The effect of inadvertent overwithholding/estimated-overpayment is to transfer taxable income from one year to the next."

Nope. The effect is to transfer deduction from one year into income for the next year.

Deduction is not the same as "negative income" or "net reduction in income". They can be render irrelevant/invalid. For example if you don't itemize. Or if you're hit with AMT. Then it doesn't matter if you take half or full amount of deduction, your tax is still the same. So the net effect is the overwithholding amounts to $0 reduction in your tax/income. (For the purpose of discussion, let's assume itemized is still more beneficial than standard deduction).

But the added tax/income next year is very real.

I've read jebmke's note with interest, however by now I'm fairly certain any calculation will just follow the same formula in that link. That link does provide some cases where you don't have to declare the whole amount of refund as income. But it doesn't affect my case - I'll still have to declare the full amount as income anyway.

Katietsu: yes, my software does allow adjusting the state tax deduction to whatever amount I want to. In fact I've done it for this year, just in case. However it looks like it won't change what I need to declare next year. I most likely still need to declare the full 1099-G as additional income.

I've read jebmke's note with interest, however by now I'm fairly certain any calculation will just follow the same formula in that link. That link does provide some cases where you don't have to declare the whole amount of refund as income. But it doesn't affect my case - I'll still have to declare the full amount as income anyway.

May well be. More times than not, the full amount is taxable. But I did want to dispel some of the misinformation that the full amount on a 1099-G is per se reportable as income. Like many things tax, "it depends."

When you discover that you are riding a dead horse, the best strategy is to dismount.

The effect is to transfer deduction from one year into income for the next year.

Deduction is not the same as "negative income" or "net reduction in income". They can be render irrelevant/invalid. For example if you don't itemize. Or if you're hit with AMT. Then it doesn't matter if you take half or full amount of deduction, your tax is still the same. So the net effect is the overwithholding amounts to $0 reduction in your tax/income. (For the purpose of discussion, let's assume itemized is still more beneficial than standard deduction).

But the added tax/income next year is very real.

Jebmke and I are both trying to get across that this is not true. If the overwithholding amount results in a $0 reduction to your taxes in 2017 then the amount of your refund added to your income in 2018 is $0. Forget about formulas. The bottom line is that the only part of your 2017 state refund that should be reported on your 2018 return is the part that saved you money on your 2017 taxes. To use your example, let's say you are hit with the AMT in 2017 such that your tax liability is the same whether you have $8000 or $10000 in state income tax. Your withholding is $10000, your state tax liability is $8000 and you get a $2000 state refund. The amount of the state refund reported on your 2018 federal income tax return is $0.

Here, see if this article helps. I think one of the issues might be that in the simple view of whether or not the state tax refund is taxable, the question is just "did you itemize last year." For many people, that results in the correct answer as to the taxability of the refund. But that is not sufficient information to actually apply the tax law and have a definitive answer. See the article, especially about one of the requirements for refund to be taxable is tied to whether a benefit was received.

Will this be moot for you next year with the increased standard deduction? Just don't over withhold on your state taxes and you won't have this issue. It seems people (and the OP) are making this more complicated than it needs to be. Most states follow the Federal safe harbor rules to avoid a penalty.

The effect is to transfer deduction from one year into income for the next year.

Deduction is not the same as "negative income" or "net reduction in income". They can be render irrelevant/invalid. For example if you don't itemize. Or if you're hit with AMT. Then it doesn't matter if you take half or full amount of deduction, your tax is still the same. So the net effect is the overwithholding amounts to $0 reduction in your tax/income. (For the purpose of discussion, let's assume itemized is still more beneficial than standard deduction).

But the added tax/income next year is very real.

Jebmke and I are both trying to get across that this is not true. If the overwithholding amount results in a $0 reduction to your taxes in 2017 then the amount of your refund added to your income in 2018 is $0. Forget about formulas. The bottom line is that the only part of your 2017 state refund that should be reported on your 2018 return is the part that saved you money on your 2017 taxes. To use your example, let's say you are hit with the AMT in 2017 such that your tax liability is the same whether you have $8000 or $10000 in state income tax. Your withholding is $10000, your state tax liability is $8000 and you get a $2000 state refund. The amount of the state refund reported on your 2018 federal income tax return is $0.

Uh, jebmke's point is correct. Your point is overly simplistic and optimistic You're thinking exactly the same way I was thinking when I started this thread. But that thinking, unfortunately, is not kosher with the tax law.

The thing is, state income tax deduction is absolute, yes-or-no. Either you take it, or your don't. There's no "taking half", or "only $8000 of it was beneficial to me" like in your example. If you take it, then you're considered "taking the deduction", and the state refund next year becomes income, up to the amount of withholding (aka deduction) you take. (Usually refund is way less than withholding, barring unusual situation, so most of the time the entire state refund becomes income).

You mentioned AMT. Say AMT means you derive no benefit from state tax deduction. Still, you need to make a conscious decision when filing tax to NOT take the state income deduction. Otherwise, if you take it, and although you have a line item for AMT, you still cannot reason with the IRS (and no software will allow you to) that "due to AMT, only some of my state tax deduction helped me". Even though you have AMT, and you know the state income deduction doesn't help (mathematically speaking), you still have to consciously decide NOT to take (by EITHER use standard deduction, OR take the state sales tax deduction instead - it's another box to tick) on 1040, in order to prevent refund next year from becoming income.

Perhaps it would be less confusing to discuss 1 specific situation instead of many possible hypotheticals (AMT, etc).
Please explain how exactly do you see taking full deduction this year increasing your tax in the next year. The only possible scenario I know of is if you're going to be in a higher tax bracket. Is that your case? If not, you most likely misunderstand how it works. Please provide calculations that you believe make it disadvantageous for you to take full deduction now so that we can check them for errors.

Most states allow you to contribute to a list of endorsed non-profit funds. California has 40 of them.

Just donate 100% of your refund amount on your state form. That donation may also earn you a deduction on next year's 1040.

Interesting thought but won't you still get a 1099G for the entire refund amount?

I would assume not. Total refund = tax overpaid - fund_contributions - (interest+penalty) = 0. The state won't send you a check. Even if it does show up on 1099G, this income is reduced to zero by the donation and thus has no impact on next year's tax.

You mentioned AMT. Say AMT means you derive no benefit from state tax deduction. Still, you need to make a conscious decision when filing tax to NOT take the state income deduction. Otherwise, if you take it, and although you have a line item for AMT, you still cannot reason with the IRS (and no software will allow you to) that "due to AMT, only some of my state tax deduction helped me". Even though you have AMT, and you know the state income deduction doesn't help (mathematically speaking), you still have to consciously decide NOT to take (by EITHER use standard deduction, OR take the state sales tax deduction instead - it's another box to tick) on 1040, in order to prevent refund next year from becoming income.

Actually the above is completely wrong. For the tax year in which the refund is received, CFR 26 1.111-1(b)(1) specifies the taxpayer need demonstrate that none, or only some of the refund is accountably taxable at form 1040 line 10, by refiguring one's taxes for the year in which the tax benefit at question was (or wasn't) received. For purposes of this demonstration re-figuring, the taxpayer is completely free to choose different filing options (notably about whether to itemize or to deduct sales tax instead of income tax) in order to demonstrate that beyond a particular reduction in the source of deduction associated with the recovery, the total tax would not be increased. Of course, in refiguring the tax, the taxpayer must also refigure AMT.

If one's tax software license for a particular tax year won't facilitate counterfactual re-figuring at some later date if a recovery is received, then it's deficient. If one's tax software for the recovery year won't let one manually specify the taxable subset of a recovery, then it's broken.

Last edited by ofckrupke on Thu Apr 19, 2018 11:10 am, edited 3 times in total.

Most states allow you to contribute to a list of endorsed non-profit funds. California has 40 of them.

Just donate 100% of your refund amount on your state form. That donation may also earn you a deduction on next year's 1040.

Interesting thought but won't you still get a 1099G for the entire refund amount?

I would assume not. Total refund = tax overpaid - fund_contributions - (interest+penalty) = 0. The state won't send you a check. Even if it does show up on 1099G, this income is reduced to zero by the donation and thus has no impact on next year's tax.

I think you will get a 1099G for the full amount. The Feds could care less that you took cash, applied it to next years taxes or donated the money to charity. The fact is you overpaid your state taxes for Federal tax calculation purposes. Of course if you itemize the following year you will likely get the benefit of those deductions, but you still have to report the refund as income.

Most states allow you to contribute to a list of endorsed non-profit funds. California has 40 of them.

Just donate 100% of your refund amount on your state form. That donation may also earn you a deduction on next year's 1040.

If you do this, it is treated as if you received your refund and then made a donation to the charity.

Therefore, your refund is still taxable (if it would have otherwise been taxable because it increased your deduction last year); you can then deduct the charitable contribution if you itemize deductions the following year.

You mentioned AMT. Say AMT means you derive no benefit from state tax deduction. Still, you need to make a conscious decision when filing tax to NOT take the state income deduction. Otherwise, if you take it, and although you have a line item for AMT, you still cannot reason with the IRS (and no software will allow you to) that "due to AMT, only some of my state tax deduction helped me". Even though you have AMT, and you know the state income deduction doesn't help (mathematically speaking), you still have to consciously decide NOT to take (by EITHER use standard deduction, OR take the state sales tax deduction instead - it's another box to tick) on 1040, in order to prevent refund next year from becoming income.

Actually the above is completely wrong. For the tax year in which the refund is received, CFR 26 1.111-1(b)(1) specifies the taxpayer need demonstrate that none, or only some of the refund is accountably taxable at form 1040 line 10, by refiguring one's taxes for the year in which the tax benefit at question was (or wasn't) received. For purposes of this demonstration re-figuring, the taxpayer is completely free to choose different filing options (notably about whether to itemize or to deduct sales tax instead of income tax) in order to demonstrate that beyond a particular reduction in the source of deduction associated with the recovery, the total tax would not be increased. Of course, in refiguring the tax, the taxpayer must also refigure AMT.

If one's tax software license for a particular tax year won't facilitate counterfactual re-figuring at some later date if a recovery is received, then it's deficient. If one's tax software for the recovery year won't let one manually specify the taxable subset of a recovery, then it's broken.

This sounds promising. But I wonder where this "demonstration re-figuring" happens. It's not like I can include a letter in my tax filing saying "I did my calculation, and insofar as the final tax is concerned, only $5000 out of the $10000 state tax deduction helped me out". How do you make that argument in the tax form?
Ideally, that argument should be made numerically, as in some kind of worksheet. But from the worksheet that I've seen, including the one given above in this thread, they don't allow any sophisticated "re-figuring" of a portion of income tax deduction. It's always about making a choice, either you take it, or you don't.

This sounds promising. But I wonder where this "demonstration re-figuring" happens. It's not like I can include a letter in my tax filing saying "I did my calculation, and insofar as the final tax is concerned, only $5000 out of the $10000 state tax deduction helped me out". How do you make that argument in the tax form?

For the filed return, the usual way is to attach a statement documenting the refiguring, with sufficient original and refigured numbers to satisfy the terms of the internal revenue code section. With some care it can fit on a single sheet.

See the section of IRS Publication 525 (for 2016 PDF, starts on page 22) on recoveries.
Also for general discussion google "tax benefit rule".
Also read the code section I referred to (google it) if you want to know the actual language establishing the taxpayer burden of documentation.

When a recovery is partially taxable one usually needs to reiterate the re-calculation in order to find the actual boundary between taxable and nontaxable parts, and finally present only one instance of refiguring - showing the smallest taxable portion of the recovery in question that leaves the original total tax unchanged. If, for purposes of minimizing the taxable part in refiguring, one exercises a different choice than in the original return - using state sales tax for instance - or takes the standard deduction - then attention should be drawn to this in the attached statement.

Ideally, that argument should be made numerically, as in some kind of worksheet. But from the worksheet that I've seen, including the one given above in this thread, they don't allow any sophisticated "re-figuring" of a portion of income tax deduction. It's always about making a choice, either you take it, or you don't.

To show my refund of 2016 state income tax paid in 2017 was in no part taxable on form 1040 line 10 for 2017, I refigured my 2016 taxes with the entire state refund subtracted from the amount withheld in 2016 and reported originally on Schedule A. I also re-figured the 2016 AMT; and since the state income tax paid is added back in on form 6251 line 7, the refigured AMT income, and therefore TMT, end up no different from the original; so every dollar of increased regular tax was matched by a dollar of AMT reduction (the refund was not so large as to consume the AMT in the refiguring), leaving the sum of the regular tax and AMT unchanged.

To refigure, I mostly relied on the same homebuilt excel spreadsheet that I'd used in 2016 for wargaming during the year and for tax return prep after the year was over; to it I added a new worksheet to present the original and refigured numbers for just the changed/key lines/cells in schedule A and forms 1040 and 6251 (no other schedule/form entries changed as a result of my refiguring). After adding some formatted text identifying the new sheet's purpose - namely to document this application of the "tax benefit rule" - I printed a copy and attached to the back of my 2017 return. I also penned a "see attachment" to the left of form 1040 line 10 (which showed zero in contradiction to the 1099-G number the state had reported).

In the process, I printed new copies of off-return worksheets like the Qualified Dividend and LTCG Tax worksheet for the 2016 refiguring, completed them by hand, and added these to my hard copy tax folder for 2017 along with notes for benefit of repeatability in case of audit after a nested computer/backup failure.